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Brexit and Switzerland-UK relations in the financial sector

Brexit and Switzerland-UK relations in the financial sector

Switzerland and the UK have enjoyed intensive and multifaceted bilateral relations for many years. Both countries also have leading global financial centres. Because the UK is one of the key mar-kets for the Swiss banks’ export business, it is very important that after the end of the transition period, relations with the UK not only remain as undisrupted as possible, but that they are also deepened in a targeted manner.

After intensive negotiations and several postponements of the exit date, the UK government and the EU reached an agreement in October 2019 on the conditions for an exit on 31 January 2020, including a transition period. In the view of the Swiss banks, the transition period between the UK and the EU should be used to strive bilaterally for an ambitious liberalisation and expansion of mutual market access in the areas of banking and investment services.

The sector’s declared objective: extensive liberalisation of market access

  • The UK left the EU on 31 January 2020. Due to the transition period, which, if not extended, will run until 31 December 2020, there will be practically no change in the bilateral trade relations between Switzerland and the UK for the time being, as the bilateral agreements between Switzerland and the EU will continue to apply to the UK. Thereafter, a new regime of bilateral agreements between Switzerland and the UK will apply. This regime was established as part of the Federal Council’s “Mind the gap” strategy.
  • There is, however, still considerable potential for deepening cooperation, especially in the financial services industry. The banking sector has declared its objective to be a far-reaching mutual liberalisation of market access after Brexit. This is to be set out in a bespoke agreement and is to be based on mutual recognition of the respective financial market regulations and supervision. In concrete terms, this would, among other things, allow domestic banks to serve interested UK customer segments more easily and in line with their needs.
  • On 30 June, the UK Chancellor of the Exchequer Rishi Sunak and Federal Councillor Ueli Maurer signed a declaration of intent on deepening relations between the two nations in the financial sector. This sets out the aim of liberalising and expanding mutual market access in the areas of banking, asset management, insurance and capital markets (including financial market infrastructure).
  • The SBA expressly welcomes this important step towards open markets. A joint sector position paper published by economiesuisse and TheCityUK on 28 April 2020, to which the SBA also actively contributed, outlined a number of issues to be addressed. It is therefore pleasing to note that these have now been incorporated into a declaration of intent negotiated at the political level. The aims of the joint statement are ambitious and implementing them will be challenging. The SBA welcomes the determination to move ahead swiftly with the technical work involved, with the goal of completing an initial stocktake by around the end of this year and concluding an international treaty within the foreseeable future.

Due to the transition period, which, unless extended, will run until 31 December 2020, there will be practically no changes in the bilateral trade relations between Switzerland and the UK for the time being. During this period, the bilateral agreements between Switzerland and the EU will continue to apply to the UK. For the period thereafter, legal certainty has been created for Switzerland with the “Mind the gap” strategy. The SBA welcomes the fallback measures of the Federal Council to date as well as the bilateral agreements signed with the UK in the areas of trade, insurance, road and air transportation as well as the movement of persons. This new regime of bilateral agreements has made it possible to largely maintain the status quo.

Further liberalisation of Switzerland-UK relations in the financial services industry

The work relating to the “Mind the gap” strategy is ongoing, even after Brexit. As part of these efforts, cooperation between Switzerland and the UK – where this is in the interests of both sides – is to be expanded beyond the existing status quo (“Status quo plus”). Because open, liberal markets are one of the objectives pursued in both the UK and Switzerland’s trade policy, the SBA’s stance on the further liberalisation of mutual market access for financial services is positive.

Since there is still a great deal of potential for liberalisation, especially in the financial services industry, it is particularly pleasing from the perspective of the Swiss banking sector that both countries have identified the financial services industry as a relevant area for increased cooperation beyond the status quo after the end of the transition phase. In this context, the approach being pursued by the SBA and its member banks is a broad opening of the markets on the basis of the mutual recognition of the relevant financial market regulations and the supervisory frameworks. The SBA is therefore very pleased to note that this approach has been incorporated into the declaration of intent on deepening future relations in the financial sector that was signed by Switzerland and the UK on 30 June 2020. This sets out the aim of an ambitious liberalisation and expansion of mutual market access in the areas of banking, asset management, insurance and capital markets (including financial market infrastructure). The “wholesale & sophisticated clients” segments addressed in the declaration are very important to Swiss banks, and an agreement would allow them to be served more easily and in line with their needs.

The financial sectors in the two countries were already in close contact before the declaration of intent was signed, and have been discussing developments in this area. The specific views of the industry associations concerned have been incorporated into a joint sector position paper by economiesuisse and TheCityUK, which was published on 28 April 2020 and is supported by around 30 industry associations and financial services institutions in both countries.

The aims of the joint statement signed between the finance ministries of the two countries are ambitious and implementing them will be challenging. The SBA welcomes the determination to move ahead swiftly with the technical work involved, with the goal of completing an initial stocktake by around the end of this year and concluding an international treaty within the foreseeable future.